The costs of drilling
18 Sep, 2008 06:45 pm
Robert Hahn, Reg-Markets Center at the American Enterprise Institute, and Peter Passell, senior fellow at the Milken Institute, had an op-ed piece in the New York Times this week arguing that environmentalists ought to be in favor of drilling in the Arctic National Wildlife Refuges and in offshore sites that are currently closed to drilling. They don't try to argue that drilling will have a large impact on gasoline prices, either now or in the future.
The markets in which oil prices are determined are global, not local, and the extra million barrels would represent less than 1 percent of total world consumption in 2025. Thus we estimate that the million daily barrels would lower the price of crude by just 1.3 percent, which few consumers would even detect against the background noise of the weekly ups and downs of fuel prices.Instead they argue that drilling will produce $1.7 trillion in net benefits to the United States economy, and they ask
If a big chunk of that $1.7 trillion could be spent on preserving wilderness that didn't happen to sit astride vast quantities of oil, would you really choose to spend it on keeping human hands off the currently protected sites?Well, if I could be sure that the $1.7 trillion would be used for environmental protection in other places I might consider it. But there are two problems with suggesting that it's a reasonable tradeoff.
- There are very few places left in the world that are as little disturbed by direct human influence as the Arctic National Wildlife Refuge, and none of them are in the United States.
- There's little chance that all (or even much) of the $1.7 trillion will ever find its way to environmental protection, and especially not to protecting lands that are little disturbed because (a) there aren't that many in the United States and (b) United States taxpayers aren't likely to approve of sending that much money to other countries.
The last three paragraphs of the article argue that the revenue generated by drilling could then be used to preserve much more (local) wilderness that people actually care more about. The implication is that environmentalists should be in favor of drilling because it could lead to more environmental preservation. This argument seems empty to me, in the same way that revenue recycling from carbon taxes is empty. The policy of whether to drill or not, or whether carbon taxes are better than cap-and-trade without auctions, should be independent of whatever happens to the revenue that is generated. The revenue could be used for all sorts of things, foremost might be dealing with a big government budget deficit. Promising environmentalists that it could go for more protection or promising taxpayers that it could be used for lowering income taxes seems like a bribe that will never be realized.
Originally published on: Uncommon Ground